Trusts and estates taxation

More About Trusts and estates taxation

Tax Analysts provides news, analysis, and commentary on tax-related topics, including the latest developments affecting treatment and taxation of trusts and estates.

The federal estate tax is imposed not on property, but on the transfer of property at the time of a person’s death. After determining the decedent’s taxable estate, the relevant tax rates are applied. The estate, gift, and generation-skipping taxes are imposed only on the portion of the estate that exceeds an inflation-adjusted exclusion amount (Rev. Proc. 2013-35, Rev. Proc. 2014-61). A transfer to a surviving spouse generally does not use the exemption amounts, and has no tax consequences.

Estates aren’t, however, mere lumps of money and other property that are passed to a decedent’s heirs. Instead, they can be of many varying types, may be active participants in businesses, may have special rules apply because of the decedent (for instance, if the decedent was a nonresident alien).

Similarly, although trusts are often part of estate planning and a decedent’s estate, this is not always the case. Other forms of trusts abound. Special rules can apply at all levels, state, federal, and local, to trusts set up for minors or incompetent persons, bankruptcy trusts, electing small business trusts, which can be shareholders in S corporations), qualified domestic trusts (QDOTs) for individuals married to noncitizens, business trusts, which are treated for federal tax purposes as corporations or partnerships, investment trusts, and liquidating trusts.